Trading Psychology: Empowering your Mind is Empowering your Trading
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You will Learn:
- What is Trading Psychology?
- How can you prevent losses using trading psychology?
- Start nurturing a brain that is optimized for trading.
When you master your own mind, anything is possible.
It is believed that Buddhist monks have been trying to master their emotions and thoughts as early as 5000BC. Nowadays, meditation attracts millions of practitioners every day.
What is their one goal? To train their mind to focus, redirect their thoughts, and attain mental well-being. This practice has now reached mass appeal. Wildly successful musical artists like Lizzo, entrepreneurs such as Linkedin CEO, Jeff Weiner, and even TV darling Oprah Winfrey all vouch for the rewards they reaped after they incorporated meditation into their daily routine.
So, what role does the mind play when it comes to the adrenaline-fueled skill of trading? This article delves into the emotional element present when trading on the markets. It will teach you how you can take back control, empower your mind and exploit the benefits of trading psychology to prosper.
What is Trading Psychology?
Trading Psychology has become a subject in its own right with several books, articles, and podcasts talking about the emotional element that traders feel when they are buying and selling on the markets. More and more professional traders are recognizing the importance of keeping your emotions in check when trading and exercising discipline. Grounding yourself and being aware of the thought processes and emotions you are experiencing is a skill that is essential for every area of your life. When your job involves making split-second decisions and taking high-risk chances it is of the utmost importance you carefully monitor your state of mind and are constantly aware of how you are feeling. Why? Well, for one you could draw high losses if you keep acting on a whim and not are not making informed decisions.
This brings us to our next point.
How can you Prevent Losses Using Trading Psychology?
The markets’ volatility is a reaction to overall investor sentiment. That is, emotions literally drive the markets to rise and fall. The successful trader learns how to forecast these sentiments and keeps his own subjective reaction in check. Find the below 4 practical tips on how you can achieve this:
1. Do not fall into the confidence trap
When a trader starts experiencing a run of successful trades it is very easy to rely on this false sense of security for all his upcoming trades. Confidence is key when trading. You cannot doubt yourself for every single decision you have to take when the market is moving at a fast-paced rate. However, when you become so confident in your own actions that you start ignoring the risk involved in your positions, you will have a very real problem on your hands.
This tends to be the number one mistake forex traders make (Daily FX research) and has caused many a traders’ downfall. Make sure you monitor yourself from time to time to ensure the decisions you are taking are based on well-informed financial facts rather than erroneous thinking. The market is continuously changing. What worked for you 4 days ago may not work for you today.
2. Instill discipline and start setting rules
As many traders know, it might be easy to keep holding onto a winning position to keep getting every last tick upward in price. However, trends to reverse, and it might be a bitter pill to swallow when you realize your greed has been controlling you.
Setting rules and employing a sense of discipline in your trading strategies are key to avoiding this and other negative habits that may lead to a number of losses. You can do this in a number of ways. Most brokers offer a stop loss that you can put into place. You can also set a profit target in place before you start a trading session. If you hit the profit target, stop trading and enjoy your rewards. If you hit your losses’ number, stop trading straight away and count yourself lucky for not losing too much.
3. Create a trading plan before you start trading
The successful investor knows the importance of having a trading plan. It allows you to have a strategy before you enter the markets, making you aware of the moves you can make and the end goal for each and every move. It basically gives you the overall picture and allows you to be more organized and disciplined when trading. It is very important you should not change the plan to suit your temporary needs and feelings and can be your objective reference when you need to make decisions and adrenaline is high.
Start Nurturing a Brain that is Optimized to Trade
“The greatest enemy of the trader is fear. He who is afraid loses.” –Norman Welz (2012)
Norman Welz was one of the first psychologists to claim that trading is 100% psychology. Without a brain, it would be impossible to predict, rationalize and take decisions. IT is important to keep in mind that 95% of our actions are unconscious and it has been proven that we tend to repeat our behavior, including behavior that has impacted us negatively in the past.
Here are some practical tips you can start incorporating into your daily routine to nurture a successful trading brain:
1. Start Meditating
10minutes of meditating every day can leave a huge impact not only on your trading but on your life in general. Apps such as Calm and Headspace are free or very cheap but can guide you professionally into meditation and mastering your mind and emotions.
2. Change some Daily Habits
Altering your daily routine slightly can leave a huge impact mentally. Waking up slightly earlier than usual to workout, meditate or simply take time for yourself and focus will work wonders to ensure you start trading in a calm and positive mindset.
3. Start visualizing your success
Visualize your profits or making a successful move to motivate yourself and find inspiration to start working towards your While this does not actually get you any closer to added funds in your wallet, it can definitely bolster your positive mindset and get you in the right frame of mind to trade.
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